GLOBAL ECONOMIC CRISIS AND ITS IMPACT ON INDIAN - Sahyadri

GLOBAL ECONOMIC CRISIS AND ITS
IMPACT ON INDIAN ADVERTSING
INDUSTRY
AVINASH BN
Ph D Candidate, Dept of Business Administration, Sahyadri College of Engineering and
Management Mangalore -7
Acknowledgement: I thank Dr. K.Vidyavathi for her guidance in preparing this paper
1. ADVERTISING
Advertising is a form of communication used to persuade audience, viewers, readers or
listeners to take some action with respect to products, ideas, or services. Most commonly, the
desired result is to drive consumer behavior with respect to a commercial offering, although
political and ideological advertising is also common. Advertising messages are usually paid for
by sponsors and viewed via various traditional media; including mass media such as newspaper,
magazines, television commercial, radio advertisement, outdoor advertising or direct mail; or
new media such as websites and text messages. Commercial advertisers often seek to generate
increased consumption of their products or services through "Branding," which involves the
repetition of an image or product name in an effort to associate certain qualities with the brand in
minds of consumers. Non-commercial advertisers who spend money to advertise items other
than a consumer product or service include political parties, interest groups, religious
organizations and governmental agencies. Nonprofit organizations may rely on free modes of
persuasion, such as a public service announcement.
Advertising can be defined as an industry that responds to the needs and mood of society
and, therefore, is consistent with the state of society and its standards. It is difficult to give an
unambiguous definition of the word "advertisement", especially in modern conditions. And not
because there exist as many opinions as there are people, but because in modern development of
marketing communications it is very complicated to determine what constitutes advertising and
what is not. But any definition of advertising is inherent in one objective: to compel the audience
to act exactly as desired by the advertiser. This goal represents the essence of advertising and its
meaning.
In order to formulate the definition of “advertising”, we will examine several existing
definitions given by different people or groups of people in different circumstances: These
definitions tried their best to define what is advertising; some of them succeeded in defining it.
But all these definitions considered to be valid to certain extent but cannot be considered them as
the best. “The non-personal communication of information usually paid for & usually persuasive
in nature, about products (goods & services) or ideas by identified sponsor through various
media” 1 . Another definition says “Any paid form of non-personal communication about an
1 Contemporary Advertising. USA: Richard D. Irwin, A. Times Mirror Higher Education Group Inc, 1996

organization, product, service, or idea from an identified sponsor” 2 . But according to Burnett
Advertisement is “Paid non-personal communication from an identified sponsor using mass
media to persuade influence an audience” 3 . Advertisement can also be explained as “The element
of the marketing communication mix that is non personal paid for an identified sponsor &
disseminated through channels of mass communication to promote the adoption of goods,
services, person or ideas” 4 .
Virtually any medium can be used for advertising depending on the characteristics and
features of advertisement. Commercial advertising media can include wall paintings, billboards,
street furniture components, printed flyers and rack cards, radio, cinema and television, web
banners, mobile telephone screens, shopping carts, web popup, skywriting, bus stop benches,
human billboards, magazines, newspapers, town criers, sides of buses, banners attached to or
sides of airplanes ("logo-jets"), in-flight advertisements on seatback, tray tables or overhead
storage bins, taxicab doors, roof mounts and passenger screens, musical stage shows, subway
platforms and trains, elastic bands on disposable diapers, doors of public bathroom, stalls,
stickers on apples in supermarkets, shopping cart handles, the opening section of streaming audio
and video, posters, and the backs of event tickets and supermarket receipts, announcements
through auto and taxi, word of mouth, endorse by icons of film, sports, or a particular industry.
Advertisements can also be through a political figure, youth icons, dresses, events, models,
sponsorships, etc. Any place an "identified" sponsor pays to deliver their message through a
medium is advertising.
So, there are many classifications within advertising on different basis. But each and
every types of advertising have their own advantages and limitations. It is the job of advertising
department to figure out which type of medium is the best and the most feasible for the company.
Advertisements can be mainly classified on the basis of media. Broadly for our convenience to
analyze the market we have considered major five different form of advertising based on the
medium, they are TV advertising, Print advertising, Radio advertising, Out Of Home, Internet
advertising all other forms are considered to be the part of these five based on the media
employed. Here after throughout this paper only above types of advertisements are considered.
2. ORIGIN AND GROWTH OF ADVERTISING INDUSTRY IN INDIA
The first Indian ad agency, the Indian Advertising Agency, was launched in the very early years
of the 20th century. On the other hand, B Dattaram & Co, located in Girgaum in Mumbai and
launched in 1905, also claims to be the oldest existing Indian agency! This was followed by the
launch of the Calcutta Advertising Agency in 1909. By the 1920s a number of Indian agencies
were working from the major Indian cities, the most important being the Modern Publicity
Company in Madras, Central Publicity Service in Bombay and Calcutta and the Oriental
Advertising Agency in Tiruchirapalli. In 1931, the first full-fledged Indian ad agency, the
National Advertising Service, was established. During the post independence era, the advertising
business was well on its way to growth and expansion. The Indian Society of Advertisers was
2 Advertising and promotion: an integrated marketing communications perspective, By George Edward Belch,
Michael A. Belch, Tata McGraw Hill, 1998
3 Advertising: Principles and Practice, William Wells, John Burnett & Sandra Ernst Moriarty Prentice Hall 2003
4 "Marketing: Principles and Perspectives, 5e" Bill Bearden, Tom Ingram & Buddy Laforge McGraw-Hill
Education; 5th edition September 2006

formed in 1951 and in May 1958, the Society of Advertising Practitioners was established and
advertising clubs came up in Bombay and Calcutta to promote higher standards of work 5 .
3. ADVERTISING INDUSTRY AND ECONOMIC CRISIS
Economic crisis is a situation in which the economy of a country experiences a sudden
downturn brought on by a financial crisis. An economy facing an economic crisis will most
likely experience a falling GDP, a drying up of liquidity and rising/falling prices due to
inflation/deflation. An economic crisis can take the form of a recession or a depression 6 .
The Global economical crisis of last five years 2007 – 2011 from sub-prime mortgages in
2007 to the newly downgraded US debt status, the latest crisis point is unlikely to be the last. The
last four-five years have seen five key stages of the global financial crisis, with more likely to
come. The first Phase was started on 9 August 2007 with the seizure in the banking system
precipitated by BNP Paribas announcing that it was ceasing activity in three hedge funds that
specialized in US mortgage debt. The second phase took its big on 15 September 2008 when the
US government allowed the investment bank Lehman Brothers to go bankrupt. On 2 April 2009
world witnessed the third stage of the crisis at London G20 summit, in the winter of 2008-09 saw
co-ordinate action by the newly formed G20 group of developed and developing nations in an
attempt to prevent recession turning into a slump. Interest rates were cut to the bone, fiscal
stimulus packages of varying sizes announced, and electronic money created through
quantitative easing. World leaders committed themselves to a $5tn (£3tn) fiscal expansion, an
extra $1.1tn of resources to help the International Monetary Fund and other global institutions
boost jobs and growth, and to reform of the banks. The fourth phase which began on 9 May
2010 marked the point at which the focus of concern switched from the private sector to the
public sector. By the time the IMF and the European Union announced they would provide
financial help to Greece, the issue was no longer the solvency of banks but the solvency of
governments. Austerity became the new watchword, affecting policy decisions in the UK, the
euro zone and, most recently in the US, the country that stuck with expansionary fiscal policy the
longest. Fifth Phase may not be the final phase witnessed the worse on 5 August 2011 Friday; the
morphing of a private debt crisis into a sovereign debt crisis was complete when the rating
agency, S&P announcing that America's debt would no longer be classed as top-notch triple A.
From sub-prime to downgrade, the five stages of the most serious crisis to hit the global
economy since the Great Depression can be found in those dates 7 .
The basic reason for the present economic crisis can be attributed to the US unregulated
financial environment, mortgage lending to subprime borrowers. The scenario of the present
economic crisis started with the collapse of American giant financial firms with their careless
attitude towards lending. With the collapse of Lehman Brothers and other Wall Street icons,
there was uttering recession clearly indicating its effect on the economy of the world. The reason
for this is not unknown to anybody. Reason being the attitude of the US financial firms and its
work force to make quick money and capture market share. Since the borrowers did not have
adequate repaying capacity and also because subprime borrowing had to pay two-to-three
percentage points higher rate of interest. But once the housing market collapsed, the lender
institutions saw their balance-sheets go into red. With the collapse of Lehman Brothers and other
5 www.download.nos.org/srsec335new/ch.17.pdf
6 http://www.businessdictionary.com/definition/economic-crisis.html
7 Larry Elliott, Economics editor, guardian.co.uk. 7 th August 2011, global financial crisis key stages

Wall Street icons, there was growing recession which affected the US which in turn affected the
whole world. This was the result of large scale defaults in the US housing market as the banks
went on providing risky loans without adequate security and the repaying capacity of the
borrower. The principal source of transmission of the crisis has been the real sector, generally
referred to as the ‘Main Street’. This crisis engulfed the United States in the form of creeping
recession and this worsened the situation of the world directly and indirectly. As a consequence,
US demand for imports from other countries indicated a decline 8 . We are less than halfway
through the crisis that began on 9 August 2007. That crisis has just entered a dangerous new
phase 9 .
4. IMPACT ON INDIAN ECONOMY
Although at one time it was thought that this crisis would not affect the Indian economy,
later it was found that the Foreign Direct Investment (FDI) started drying up and this affected
investment in the Indian economy. Indian economy severely affected, resulted in fluctuation in
stock market, rupee value, industrial output, inflation, Balance of Trade & GDP.
4.1 INDIA STOCK MARKET
The SENSEX, a major stock market index which tracks the performance of large
companies based in India melt down to the lowest in 2007 and 2009 almost reaching 12000 and
8000 points respectively. But they recovered from their worst status after those periods showing
appreciable progress. The impact is so severe even now are fluctuating to find steady levels.
4.2 INDIA INFLATION RATE
8 Ruddar Datt, Mainstream, Vol XLVII, No.15, 28 th March 2009
9 http://www.guardia.co.uk/business/2011/ag/07/global-financial-crisis-key stages

To curb the inflation RBI made several changes in its financial policies. Because of all
these the Indian economy experienced its worst growth in the present financial year from an
estimated 9.0% at the beginning of the year to present 7.0% in 2011. In the financial year 2010-
11 India achieved its growth rate at an average of 8.5%. It was; therefore, felt that the Indian
economy will grow at about seven per cent in upcoming financial years. The lesson of this
experience is that India must exercise caution while liberalizing its financial sector.
4.3 INDIA GDP GROWTH RATE
The industries most affected by weakening demand were airlines, hotels, real estate,
IT&ITES. Besides this, Indian exports suffered a setback and there was a setback in the
production of export-oriented sectors. The government advised the sectors of weakening demand
to reduce prices. It provided some relief by cutting down excise duties, but such simplistic
solutions were doomed to failure. Weakening demand led to producers cutting production,
reducing the inventory level. To reduce the impact of the crisis, firms reduced their workforce,
advertisement spending, and sales force, ensured utmost care to reduce costs through all means.
This led to increase in unemployment, decrease in revenues, and increase in halt time of the
machines and severe blow on the economy.
4.4 USD AND INR EXCHANGE RATE
The rupee against USD also fluctuated throughout the reference period reaching to its
greatest high in December 2011 and January 2012. This indirectly resulted in increase of the oil
prices and thereby influencing the inflation of India. The rupee reached its highest 53.75 in
December 2011.

4.5 INDIA INDUSTRIAL PRODUCTION
Industrial Production is an economic report that measures changes in output for the
industrial sector of the economy. The industrial sector includes manufacturing, mining, and
utilities. Although these sectors contribute only a small portion of GDP, they are highly sensitive
to interest rates and consumer demand. This makes Industrial Production an important tool for
forecasting future GDP and economic performance. Industrial Production figures are also used
by central banks to measure inflation, as high levels of industrial production can lead to
uncontrolled levels of consumption and rapid inflation. Consequently, a vicious cycle of weak
demand and falling output developed in the Indian economy.
The Index of Industrial Production (IIP) recorded a de-growth of 5.1% in October 2011,
relative to the 11.3% growth in October 2010, extending the slowdown in industrial growth
witnessed in the recent months (9.5% in June 2011, 3.7% in July 2011, 3.6% in August 2011 and
2.0% in September 2011). The 5.1% contraction in industrial output in October 2011 was sharply
lower than the consensus estimates and marks the worst growth performance since March 2009 10 .
4.6 INDIA BALANCE OF TRADE
The case was almost similar in case of the India’s Balance of Trade. Reached its lowest
in 2008 and then in 2010. In both these cases it crossed -15000 million INR mark. It touched it’s
lowest in December 2011 that is -20000 million INR mark according to the sources from
directorate general of commerce.
5. IMPACT ON GLOBAL E&M INDUSTRY
10 Aditi Nayar, Index of industrial Production October 2011: De growth of 5.1% led by broad based slow down in
output, ICRA Ltd, Gurgaon, www.icra.in

Worldwide, 2010 saw the global economy begin to recover from a steep decline in the
previous years. Improved economic conditions in 2010-11 played a major role in setting the
market on a regular path by increasing the consumer spend, advertising spend and most
importantly in the E&M spend. While India and China were not critically impacted by the
downturn in 2008 and 2009, they demonstrated one of the highest growth rates in the recent year
and continued to outperform their global peers. Advertising, the most cyclically sensitive of the
three E&M spending streams recorded the largest year-on-year swing, growing by 5.8% in 2010
from almost an 11% decline in 2009. Consumer spending grew 2.2% while E&M spending as a
whole grew at 4.6% in 2010. Advertising, the most cyclically sensitive of the three E&M
spending streams recorded the largest year-on-year swing, growing by 5.8% in 2010 from almost
an 11% decline in 2009 11 .
From the below table, Indian market in terms of the spending in absolute numbers is very
small in comparison to other countries in the list. But, the global economic crisis also affected
India like all others. When the absolute figures are taken into consideration the countries
economical impact looks like very marginal but when it is compared with the growth rate year by
year impact of the global downturn can be seen with utmost clarity. The real effect of the global
economic crisis is majorly on US, Germany and Japan and to a certain extent on China and India.
The economic crisis was severe in those three countries because of their well developed market
and highly advanced key players in the economy.
US market grown only by 3% in 2007 thereby continuous negative growth for next two
years which was almost -1% and -7% in 2008 and 2009 respectively. Having recovered from this
crisis to a small extent in 2010 showed a positive growth of 3% which is again not appreciable
because the spending in the year 2010 is lesser than the spending in the year 2010. The case is
almost similar in Japan market where in growth percentage drastically came down from 2007 to
2009 but a minor cheer at the end of the year 2010. The growth percentage in the year 2007 was
almost 6% and came down to 2% in 2008 thereby a growth of -3% in 2009. But, having
recovered marginally Japan showed a positive come back in 2010 with almost 1% growth which
is still a matter of concern taking into consideration the Japans advertising potential. The next
severely affected country by this downturn is Germany, which has showed 4% growth in 2007,
1% in 2008, -1% in 2009 and backed by 3% in 2010 growth which is appreciable to some extent.
11 PWC’s India Entertainment and Media Outlook 2011 – July 2011, p-7

6. IMPACT ON INDIAN ADVERTISING INDUSTRY
Growth in business has lead to a consecutive boom in the advertising industry as well.
The Indian advertising industry today handles both national and international projects. This is
primarily because of the reason that the industry offers a host of functions to its clients that
include everything from start to finish that include client servicing, media planning, media
buying, creative conceptualization, pre and post campaign analysis, market research, marketing,
branding, and public relation services. Keeping in mind the current pace at which the Indian
advertising industry is moving the industry is expected to witness a major boom in the times
ahead. If the experts are to be believed then the industry in the coming times will form a major
contribution to the GDP 12 .
The segment wise breakup of the entertainment industry clearly shows that television and
prints media together accounts to 75% and plays a vital role. But through this, cannot neglect the
other sectors contribution to the industry as whole and their impact on the market. Having other
segments in their early stages of the growth the contributions are less and their impacts are also
less within the industry and within themselves. Online advertising is picking up its root in India
very slowly but once it is developed it will definitely overtake the print media at least in the near
future.
SEGMENT
WISE BREAK UP OF
THE INDUSTRY
(2010)
India recorded second
highest growth rates in
the world growing at 11.2%
in 2010 next to China at 13%.
The advertising
industry in 2010 stood at
INR 247.5 billion as
compared to INR 216.5 billion
12 http://www.exchange4media.com/e4m/bottombarfiles/Indian-advertising-industry.asp

in 2009. The two key industry segments performed to their best against all odd, they are
television 14% growth over the previous year and print 13% growth on the same basis. These
two media always showed good growth aspects in the recent past but failed to check the impact
of global economic crisis. The advertising industry continues to be dominated by TV, print and
OOH. Whereas the Internet advertising is gearing up with the recent developments in
telecommunication and increase in number of users of internets. More and more players are
using this mode of advertising to push their products and build their brands. With the present
growth rate Internet advertising will emerge as the second largest media after television by 2015
overtaking the second largest print media in the world. Presently Internet advertising market in
India is not so developed mainly because of the lack of interest, developing technology and its
outreach in comparison to the dominating television and print media. Having placed at fifth
position in India after TV, Print, OOH and Radio continues to deliver its role in advertising
market by attracting specific advertisements which are predominantly e-based, customer specific
and targeted people.
Growth of media wise Indian advertisement industry shows clear effect of economical
downturn or global economic crisis. The major media of advertisements in India are Print and
Television. These two media plays a vital role in the advertisement industry over others, because
of their capability to reach mass and effectiveness through creativity. These media were not out
of the ambit of global economic crisis and suffered a great set back. The Print media experienced
it’s de-growth from 20% in 2007 to 10% in 2008 and there by a negative growth -3.5%. But
recovered to a greatest extent in 2010 marking 33% growth through which it proved the
capability to with stand and deliver against the global economic crisis. Having a lion share in
advertisement television media also affected by the global economic crisis. Though there is no
such changes in the advertisement spending are concerned, but there is a clear evidence of dip in
growth rate from 17% in 2007, 8% in 2008, and 6% in 2009. In 2010 it also recovered from its
worst growth trend and reached 14% but not a remarkable progress.
Radio advertisements are very restricted because of the absence of visual trailers.
Because of this reason the spending on radio advertisements are very small in comparison to all
other media. But, emergence of new radio channels with the developments in communication

technology is attracting good number of advertisements. The global economic crisis also affected
this media in its growth which was 38% in 2007 to 20% in 2008 and thereby a drastic low of 8%.
But in the year 2010 the same media reached 20% and thereby showed a good come back in
terms of growth.
OOH has shown decreasing growth over the above targeted time period. It had a growth
of 25% in 2007, 20% in 2008 and fell down to -16% in 2009 but showed a positive come back to
12% in 2010. Here the absolute figures of Radio and OOH advertisements spending are very
small but the impact on its growth can be felt only using the growth trend. The internet Media
has shown reverse trend in comparison to all other media. In the reference time period the
growth started at 68% in 2007 and rose to 85% in 2008. This was not the case in the
subsequent years and drastically came down to 20% in 2009. But in 2010 it reached 28% which
is appreciable to some extent but really not when the absolute numbers are taken into
consideration.
7. EXPECTED GROWTH OF INDIA’S AD INDUSTRY 13
According to the estimates of future growth by PWC, the India’s advertisement industry
expected to reach 471 billion INR by 2015. By the same period the huge difference in the
Television and Print will narrow down and may reach to the same level of 200 billion INR.
GROWTH OF THE INDIAN ADVERTISING INDUSTRY 2006-15
ACTUAL EXPECTED
INR BILLION 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
TELEVISION 66.2 78 84.2 89 101.5 116 133 152 175 200
PRINT 78 94 103.5 100 113.5 127 140 157 176 197
RADIO 5 6.9 8.3 9 10.8 13.5 16.5 19 22 26
OOH 10 12.5 15 12.5 14 15.5 17 19 21.5 24
INTERNET 1.6 2.7 5 6 7.7 10 12.5 15.5 19.5 24
TOTAL 161 194 216 217 247.5 282 319 363 414 471
13 PWC’s India Entertainment and Media Outlook 2011 – July 2011

8. CONCLUSION
Just by recovering from de-growth it cannot be taken granted as they are fully out of
danger from this crisis. The recent down grade of the US economy is yet to show its impact.
Current political and financial scenarios may again affect this industry and may push these to the
worst condition than the present one. To overcome the future troubles, Indian economy should
improve its economical conditions, economical policies and there by becoming economically
independent country. By this the indirect effect of the worst from west can be successfully
checked and actions plans can be formulated before it uproots the Indian economy.
Indian Advertising Industry is in a nascent stage, it evolved from being a small-scale
business to a full-fledged, highly developed, sophisticated and technologically driven industry. It
has emerged as one of the major industries in tertiary sector and has broadened its horizons be it
the creative aspect, the capital employed or the number of personnel involved. Indian advertising
industry in very little time has carved a niche for itself and placed itself on the global map by its
rapid advancement. Indian advertising industry with its enormous spending and investments has
made jaws drop and set eyeballs gazing with some astonishing pieces of work that it has given in
the recent past. The creative minds that the Indian advertising industry incorporates have come
up with some mind-boggling concepts and work that can be termed as masterpieces in the field
of advertising. Indian economy is on a boom and the market is on a continuous trail of
expansion. With the market gaining grounds Indian advertising has every reason to celebrate.
Businesses are looking up to advertising as a tool to cash in on lucrative business opportunities
and market penetration through its attractive advertisement campaigns.